Assessing Minority-Majority Joint Ventures

Q: I am a minority contractor. We would like to do more joint ventures with majority firms but are worried about not being in control over everything. Law suits could arise, costs could spiral out of control and other things. But joint ventures are a great way to raise our profile and get involved in projects we might not have gotten alone. What are the negatives and positives of these ventures? What should we be aware of?

A: Joint ventures are topics that have many facets for both the minority and majority contractors involved.

As with most business dealings, there are no replacements for trust, honesty, full disclosure, open and honest communication, partnering and agreeing on a dispute resolution process. Without all of these in place prior to starting, there are many problems, both real and perceived, that arise to jeopardize a successful and profitable arrangement.

What follows are some questions pointing to both the positive and negative realities and perceptions of both majority and minority contractors that should be discussed and resolved before signing on the dotted line.

Bringing Value to Joint Venture

From the perspective of the majority contractor, each joint venture partner should bring value to the project.

Is that value solely the minority status of the minority joint venture partner or are there construction services that will enhance the overall project? Is the contractor carving out a piece of the project only to satisfy a governmental mandate or working to include partners that can provide value? Is the joint venture with the minority contractor intended to be a mentoring/learning experience for the minority contractor or solely a business proposition?

Is the majority contractor willing and able to provide the proper mentoring experience for the minority contractor or should a third party facilitator be engaged to ensure the learning process stays on track? As the majority contractor, am I adding additional costs into my bid to cover additional costs for a joint venture partner that may not be able to deliver value while still requiring mentoring time? Are all bidders meeting this same requirement fairly?

These are many subjective discussion points that can lead to some heated and open discussions, but should be confronted early in the project.
From the perspective of the minority contractor, the quality of the learning and business building process should be assessed.

What do I expect to learn on this project? How much capacity can I deliver and how much capacity to I expect to gain? Can I be honest with my joint venture majority partner about construction services I cannot deliver, thereby possibly jeopardizing my inclusion on the project?

The primary flaw I have seen with bad majority/minority joint ventures is the lack of development of human capital. Majority partners are focused on getting the project done on time and profitably and expecting all joint venture partners to perform certain portions of the contracted work in this way.

Minority partners hope to develop project managers and construction professionals who have a better understanding of construction cost estimating, management issues, job costing, profit/loss tracking and other business related issues. When either side loses, they both lose.

Get clear up front and early on these issues. This is truly a situation where haste makes waste for both partners.

Do you have questions on construction human resources or safety?
E-mail them to Leonard Toenjes at ltoenjes@agcstl.org or
craig_barner@mcgraw-hill.com. (If Len picks your question, he will answer it in a future issue of Midwest Construction.)